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No managers, no problem: How Zappos became a Holacracy

by Open Work

By trusting and empowering every employee to be a decision-maker, this e-commerce brand keeps innovation at the forefront.

Company longevity isn’t what it used to be. According to Yale University professor Richard Foster, most companies that reach the S&P 500 Index of leading U.S. firms, become extinct within 15 years. That’s down from an average of lifespan of 67 years in the 1920s. At Zappos, an online shoe and clothing shop based in Las Vegas, Nevada, the executive team saw the writing on the wall: They were growing at unprecedented rates, which was exciting, but the more they grew and the more people they hired, the less innovative they risked becoming.

Why? Jordan Sams, a Self Management Trainer on the Holacracy team at Zappos, attributes this innovation problem to deep management layers. As companies grow, managers move further from the front lines of work — they can’t sense problems or respond as quickly as they once could. Employees on the front lines also get pushed further from the people at the top. And even if employees have ideas about how to fix problems, most employee-created innovations take forever to get to the top in large companies, often dying before they arrive.

Zappos didn’t want to be included in this non-innovative, slow downhill destiny of large companies, so they decided to do something wild: In 2013, they flattened their management structure, eliminating managers and putting the power of decision-making into the hands of every single employee.

Sams was working in the customer service department, where he’d just been promoted, when he got the news. Zappos CEO Tony Hsieh sent an email to the whole company about this big switch. The gist of it: Starting that day, Zappos would be a Holacracy.

Zappos CEO Tony Hsieh

“The idea behind self-management and self-organization is that we eliminate all the management layers and give employees the ability to take control, no matter what their title,” Sams says. “If they have the power to make change, innovation will happen more frequently and problems will be solved. We’re taking the startup style of work and scaling it up.”

Sams uses a metaphor to explain the idea of Holacracy: Zappos’ new hires are expected to arrive at training at 7 a.m. on their first day. So, if you ask three people in the group what time they arrived, they’ll likely have the same answer: 7 a.m.. But if you ask them how early they woke up to make that 7 a.m. introduction time, they’ll all have different answers. And if you ask each of them about why they woke up at that certain time, they’ll also have different answers. But here’s the key piece: Each person in the group arrived at the same time, even if they all got there in different ways. This is self-management in a nutshell: Giving employees a clear understanding of what is expected, then letting them do what they think is best to meet those expectations.

“We don’t look at how you got there, we just want you to get there,” Sams says.

Self-management, the core of Holacracy, is meant to increase innovation in large companies, allowing great ideas to get from the bottom of the management totem pole to the top more quickly. Hsieh and his team hoped that by flattening the barriers to entry at Zappos, the company could remain at the top of their game for the next 15 years and beyond. It was a risky move, but one they were willing to take.

Initially, Sams says he was upset about this change. He’d just been promoted, and he worried that he wouldn’t be able to use the leadership skills he’d been developing for the past few years. Others were upset too. They were overwhelmed. Managers worried that they would become obsolete, and they were concerned about how the company would get any work done.

But then Sams started reading about Holacracy and realized that these were all misconceptions. He wasn’t going to lose his job — instead, he’d be empowered to make decisions on his own, just like everyone around him. Eventually, Sams decided to change his role, joining the Holacracy team where he now teaches Zappos employees about how to rethink their workdays.

Zappos Las Vegas Headquarters

Instead of teams, Zappos now has “circles” with “lead links.” The lead link takes the place of a traditional manager with one distinct difference. In the old world, the manager would have the final say in decisions. In Holacracy, the lead link performs many of the traditional managerial duties, but the circle comes to a decision together about how to make changes. “We wanted a more open process,” Sams explains.

Promotions in the Holacracy world revolve around a progression plan developed by each circle, too, rather than a blanket plan devised by human resources. Sams says that when they brought together the Holacracy team, each employee was responsible for compiling a list of their skill sets, then researching what the market value and title for those skills would be. They presented their ideal titles and salaries, with research, to the Zappos compensation team before the team was launched.

Admittedly, implementing this kind of change wasn’t easy, especially because Zappos is a big company with more than 1,500 employees. People needed to get into the same mindset and misconceptions needed to be cleared up, which is why Sams’ job was created in the first place. To overcome these challenges, the Holacracy team teaches classes about self-management, and they provide coaching and one-on-one counseling. Going into year four, Sams says people are finally starting to get it.

Sams says the biggest challenge isn’t the logistics, it’s helping people change their perspectives about what work should look like. “At a normal company, you come, you get hired, you sign a page with your job description, and then you do what’s on that paper,” he says. “In this environment, job expectations change based on the needs of the company. Often, I am able to do what I think is best for the business on an everyday basis without getting approval. It’s been empowering for me to be able to move forward with a class or idea without having to jump through hoops.”

So the big question is, is it working? The jury is still out on that, although most current Zappos employees will tell you that Holacracy, which was once overwhelming, has become a natural part of the Zappos process, and the company was rated as one of Forbes’ best places to work in the U.S. for six years in a row. But for Sams, another measure of success has come with an increase of innovative ideas that actually make it to the top of the company, things like allowing employees to bring their dogs to work or donating money to a cause on a holiday instead of running a sale.

“Whether you use Holacracy or not, allowing employees to think freely and be innovative is really important. Employees are going to reach their potential if they’re given the freedom to do so, and it’s proven that employees are more engaged if they have more ownership,” Sams says. “I don’t know if this is the answer, but getting out of the traditional mindset [of work] is important.”